Citi: Brace for global recession | MacroBusiness

David Llewellyn-Smith quotes Willem Buiter at Citi:

….The main ‘game changers’ in our view are the emerging belief that even the US economy is no longer bullet-proof and that policymakers (in the US and elsewhere) may not be there to come to the rescue of their own economies, let alone the world economy, by propping up asset prices and aggregate demand. It is likely, in our view, that global growth will this year once again underperform (against long-term trends and previous year forecasts). Citi’s latest forecasts are for global growth of 2.5% in 2016 (based on market exchange rates and official statistics) and around 2.2% (adjusted for probable Chinese mismeasurement). But in our view, the risk of a global growth recession (growth below 2%) is high and rising.

…..even though monetary policy is at the point of strongly diminishing returns, it is likely to remain the principal instrument through which authorities in a range of countries will try to boost growth and inflation.

…..In most countries, the hurdles for a major fiscal stimulus remain high.

There are no free lunches: “propping up asset prices and aggregate demand” reduces the severity of recessions but inhibits the recovery, leading to prolonged periods of low growth. The further asset prices are allowed to fall, the stronger the recovery as investors (eventually) snap up ‘cheap’ assets. Maintaining high prices is sometimes necessary, as in 2009, to prevent a 1930s-style collapse of the banking system but we may pay the price for another decade.

Source: Citi: Brace for global recession – MacroBusiness

4 thoughts on “Citi: Brace for global recession | MacroBusiness

  1. […] Selbst wenn der Kondratieffsche Winter den übergeordneten Rahmen für eine weiterhin anhaltende depressive Entwicklung bildet, so kann die Wirtschafts- und Finanzpolitik dazu beitragen, den Prozess abzukürzen – oder zu verlängern. In diesem Zusammenhang hat Willem Buiter, Citibank, vor einigen Wochen erneut darauf hingewiesen, dass das Hoch-Halten von Asset-Preisen und volkswirtschaftlicher Nachfrage zwar die Schwere von Rezessionen abfedern kann, jedoch zugleich die Dynamik konjuktureller Erholungen schwächt. Das führe zu immer ausgehnteren Phasen niedrigen Wachstums, schreibt er. […]

    • ColinTwiggs says:

      Google translation:

      Even if the Kondratieff Winter is the overarching framework for further sustained depressive development, the economic and financial policy can help shorten the process – or lengthen. In this context, Willem Buiter, Citibank, a few weeks ago again pointed out that the high-keeping asset prices and economic demand can indeed mitigate the severity of recessions, but also the dynamics weakens cyclical recoveries. This is leading to ever more advanced outgoing phases of low growth, he writes.

  2. grahamdcox says:

    Hey, global growth recession, not global recession

  3. […] Willem Buiter of Citigroup warns that further monetary easing faces “strongly diminishing returns”, while “hurdles for a major fiscal stimulus remain high”. To me, major infrastructure spending is the only way to avoid prolonged stagnation but resistance to further increases in public debt is high. The only answer is to focus on productive infrastructure assets that generate returns above the cost of servicing debt, improving the overall debt position rather than aggravating it. […]

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